The Multilateral Debt Trap in Jamaica

June 2013, Jake Johnston

In early 2010, in an effort to address its unsustainable debt burden, and as a pre-condition for an IMF agreement, Jamaica undertook a debt exchange that sought to lower interest rates and extend maturities but did not provide any haircut (a lowering of the debt principal). As part of the IMF agreement, Jamaica undertook severe austerity measures, freezing wages and cutting spending. Even after the debt exchange, Jamaica was left with the highest debt interest burden in the world. Although the IMF agreement eventually broke down, Jamaica has largely continued the austerity measures from the first agreement.

Three years after the IMF agreement was signed and the debt exchange completed, Jamaica once again turned to the IMF and undertook a new exchange. Once again, the exchange only affected domestically held debt and did not reduce the principal. Once again, the conditions may prove unsustainable. The recently signed IMF agreement, together with funding from the World Bank and IDB, will give Jamaica access to some $2 billion dollars of loans over the next four-plus years. But it is also the case that, after billions of dollars of previous World Bank, IDB and IMF loans, much of its debt is actually owed to the very same institutions that are now offering new loans. This issue brief looks at the case for multilateral debt cancellation in Jamaica.